Recent Bankruptcy Court Ruling Denies Stay Relief For Apple to Litigate Patent Infringement Claims With Eastman Kodak

March 13, 2012

A recent Southern District of New York bankruptcy court ruling denied two motions filed by Apple Inc. (“Apple”) seeking relief from the automatic stay to continue patent infringement litigation with, and to commence new patent litigation against, Eastman Kodak Company and its affiliated debtors (“Kodak”). In the first motion, the court denied Apple’s request to continue litigation related to the ownership of certain patents, including patents that comprise a significant portion of the multi-billion dollar patent portfolio that Kodak will seek to divest as part of an anticipated sale under section 363 of the Bankruptcy Code later this year. While the court recognized the significance of resolving ownership disputes before a sale occurs, the court rejected Apple’s proposal because it did not propose a process that would resolve promptly the ownership dispute. In the second motion, the court denied Apple’s request to commence new patent infringement litigation related to alleged post-petition conduct because Apple failed to make a sufficient showing regarding the relief sought or its entitlement to such relief.

The court’s ruling highlights an interesting tension between a debtor’s interest in protecting and maximizing the value of its assets against the concern that third parties’ rights and interests in such assets are adequately protected in the bankruptcy process. The ruling also highlights the tension between the need to adjudicate that ownership interest early in a chapter 11 case, and the need to provide debtors with appropriate breathing room under the automatic stay.